Thanks for the image! I've used that info to look through the applife knowledge base, and so far am not coming up with anything that seems relevant -- but, the next step with them would be for me to contact them and show them the image to see what they think.
As one temporary workaround... can you try renaming the AIWar.exe to AIWar2.exe and then run that? It's possible that even that will fail because some other process unrelated to the game or the installer is locking it, which would then prevent you from even renaming it. If you are able to rename it, then running the updater from the "2" version should let you do the update without incident.
This is obviously kind of a hack, but it should give us some useful information and/or let you at least get this update. I'll follow up with the AppLife folks after I hear how this goes, so that I can give them the most information possible. Of course, if it's some other process that is locking the executable (and preventing updates and rename of that file), then that other process would need to be killed before you actually do the update -- possibly Steam left a handle open to it, and simply needs to be restarted. Possibly there is a background copy of AI War running (check Task Manager) that needs to be killed. Possibly there is something funky in the OS with it referencing it (this happens to me sometimes with files, though never AI War or any other game before), and in that case a reboot should fix it.